Are We at an Inflection Point?

You can sum up much of 20th century history by saying that in the 1930s Americans decided that markets didn't work and government did, and that in the 1970s Americans decided that government didn't work and markets did.

The protracted and painful experiences of those decades changed basic public attitudes on the balance between government and markets, between regulation and enterprise, between government aid programs and self-reliance. The breadlines and depression of the 1930s moved Americans in one direction; the gas lines and stagflation of the 1970s moved them in the other.

Which raises the question of whether the financial ructions of 2007-08 (09?) will move them back again. One reason to believe this is possible is the passage of time. Americans in the 1980s and 1990s were ready to accept deregulation and tax cuts and welfare reform because so few of them had personal memories of the 1930s.

In 1992, Bill Clinton ran as a different kind of Democrat because so many voters then had personal memories of the 1970s. Today, fewer do. Half the voters did not reach adulthood until the 1980s. They never sat behind the steering wheel in a gas line or paid monthly bills as inflation was skyrocketing. It's plausible that they may be more open to big government programs than their elders.

Barack Obama and other Democrats have used the financial crisis to spin a narrative. The problem, they say, is deregulation and greed. This is not strictly speaking accurate. Obama and the Democrats opposed tighter regulation of the mortgage giants Fannie Mae and Freddie Mac, and John McCain supported it. Unregulated firms like hedge funds have done well, while heavily regulated banks have had troubles.

But the narrative will be advanced by the Obama-loving media ... and by the passage of a giant financial bailout — er, rescue package. The likelihood, as this is written, is that Obama will be elected president and the Democrats will expand their congressional majorities. Possibly even to the 60 votes they need to effectively control the Senate.

In that case, Democrats might be able to move toward nationalized health care finance. Their card-check bill will promote unionization and do to much of the private sector what union contracts have done to the Detroit Three automakers. Higher taxes and overregulation could reduce economic vitality and creativity.

Comparable worth laws could have bureaucrats setting private sector salaries. America could move some distance to becoming another France.

Those seeking that outcome would do well to study some history. Some New Deal-Great Society programs have mostly worked well over the long term: bank deposit insurance, securities market regulation. Some worked well for many years but are on the road to something like financial collapse: Social Security, Medicare. But some had adverse economic effects and proved unpopular: high taxes on high earners, industrial unionization.

The economy in the 1930s suffered from what Amity Shlaes in "The Forgotten Man" calls a "capital strike," with unemployment stuck over 10 percent. Take a look at the polls in the 1940 election. If voters had decided on domestic issues, the Democrats probably would have lost. Franklin Roosevelt won because Adolf Hitler, with his then-ally Joseph Stalin, had conquered most of Europe and was threatening Britain and the United States. Roosevelt's experience and his steady hand on foreign policy won him his third term.

The war that followed produced huge economic growth and sharp increases in income equality — the biggest such movement in American history. But the war policies — government taking up nearly half of gross domestic product, the mobilization of the equivalent of 37 million in the military — are not replicable under any circumstances foreseeable today.

Postwar America continued to grow, with help from the John Kennedy tax cuts, declining unionization and (I would argue) the civil rights acts. But eventually, in the 1970s, regulation designed to freeze a static economy in place and macroeconomic policies complacent about the danger of inflation (the big problem in the 1930s was deflation) produced the gas lines and stagflation voters rebelled against. Policies inspired by the inflection point of the 1930s led to a different inflection point in the 1970s.

Are we looking at another inflection point today? Maybe so. Reviewing the long course of history, I think it's obvious that market capitalism, together with the rule of law, hard currency and regulations that ensure transparency and accountability, has produced bounteous growth and the resources to address problems that require government action, like defending the nation and protecting the environment. But voters tend to consider only the history they know. They might do well to look back a little further.

To read more political analysis by Michael Barone, visit www.usnews.com/baroneblog. To find out more about Michael Barone, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2008 CREATORS SYNDICATE INC.

??

??

??

??

Comments

Sir; ... You can sum up history any old which way if you care nothing for the truth. Part of our truth is the polarizing effect of our two parties which draw a line between left and right, good and bad, rich and poor, moral and immoral. Some of the jump to the deregulation of the economy was made on the strength of a purely moral, necessary, and essential effort for justice and equality between the races. I live in the North, in a union town, with a major universtiy in the city next door. But when I was young I saw the governor, George Wallace, and I looked at those hollering, working class men, shorted out of their sense of social superiority and I saw the Reagan Democrats of later years. Does anyone believe that government can do any moral right without the support of the people, or that it cannot do any moral wrong having the support of the people. If you do a good the working people must pay for they will hate you, and the working people pay for everything. The government will never be more moral than the people, and yet hopefully will be as moral. And the purpose of government is moral. There is nothing I can see in the stated purpose of our government in defense of the economy. The welfare of which it speaks is general... All the Aims of our government are moral. Where is the moral aim of our government ever cited in the crafting of law or in decisions of the high court? People do what they want to do at their own risk in government, counting on the experts and think tanks for spin and cover. Do you want to take us all to war? How can we stop you? But it better go well or we will call you on it...The aim of government is moral, and it is the mechanism of government that turns aside the moral purpose. Do you want to break the government to save an economy that the government has allowed to run hog wild until it has glutted itself nearly to death? You are not alone. The government will go against the will of the people out of the fear of the consequences of not going against that will. They have not considered the consequences. They are like a punch drunk fighter leaning away from a punch after he is hit only to lean into the next punch. Reality is coming at them too quickly to be avoided. Does it matter that congress is a deliberative body? They feel they must lead, when, to be fair, they should follow. The house, for example, should be larger and more numerous by many times. They wanted power. Any day now, they might wish to hide behind their want of power, and say: I have done as those who elected me ordered. Since they represent vast numbers in divided districts, the unity they could hide behind, no one can hide behind. So, if you get my point, government cannot do good unless a sizable group finds a benefit in it. As always, it is money as the equal of many votes, that gets and keeps the attention of government. It is wrong for government to try to do good without wide ranging support, or to do evil without wide ranging support. But it has all the authority it needs to not do wrong, and always. And it has the time, if it did not find time so essential to re-election, to actually anticipate problems and fix them before they become world shaking disasters. ...So long as any vote can be turned against any man don't expect anyone to take a stand. Of course, this would not be a problem if just one body, the house, represented small number of voters with large numbers of representative. Then each man would have the cover to do right, or do what he is told. That is, in other words, to have responsive government... If that is the real cure to our problems, to have government do the moral good for which it was constituted, then one must recapture the good parts of our former constitution, get rid of the parties, which act as another layer of government -and an impediment to change, and make government responsive by increasing the ratio of representatives to citizens. If democracy is denied so will virtue be denied. ...Thanks...Sweeney